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What does a financial ratio state?
AThe relationship between financial data on a percentage basis
BThe market value of the assets a firm owns today
CThe total amount of cash a firm collected in a year
DThe order in which a firm lists its liabilities
Answer & Solution
Correct answer: A. The relationship between financial data on a percentage basis
1. Ratio analysis calculates and interprets financial ratios using data taken from the firm's financial statements.
2. A financial ratio states the relationship between financial data on a percentage basis.
3. Current assets might be viewed relative to current liabilities, or sales relative to assets.
4. The purpose is to assess condition and performance, which no single raw total on a statement can do alone.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 14 "Using Financial Information and Accounting", section 14.7 Analyzing Financial Statements_
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